Surface acoustic wave (SAW) resonators are utilized as torque sensors for their passive and wireless features. However, the response of a SAW torque sensor is difficult to detect because of the transient response duration and interruption of channel noise, which limit the application of SAW torque sensors. The sensitive mechanism and response function of a passive wireless SAW torque sensor are analyzed in this study. A novel demodulation system involving both hardware and software is developed for the SAW torque sensor. A clipping amplifier is utilized in the hardware to widen the dynamic response range and increase the length of the valid signal. Correlation extension and centroid algorithms are designed to lengthen the received signal and improve the estimation accuracy of the center frequency of the response signal, respectively. Meanwhile, a fast binary search algorithm is proposed to accelerate the scanning cycle according to the developed response function. Finally, the SAW torque sensor demodulation system is set up and SAW resonators with high sensitivity are fabricated on a quartz substrate. The presented demodulation system is tested, and a standard deviation of 0.28 kHz is achieved. This value is much smaller than that of classic and modern spectrum estimation methods. The sensitivity of resonance frequency shift versus torque on the shaft of the assembled senor is 2.03 kHz/Nm; the coefficient of determination is 0.999, and the linearity is 0.87%. Experimental results verify the validity and feasibility of the proposed SAW torque sensor demodulation system.